Cost minimization and value maximization from an operations management perspective

Value, as defined, is the ratio of Function to Cost.				needs more features, these can be sold as
Value can therefore be increased by either				options.
improving the Function or reducing the cost. It is a
primary tenet of operations management that no				- Energy efficiency - Value can be created by
one is to relax the quality levels as a consequence				making a product or process more energy
of pursuing value enhancements.				efficient for the user. This is particularly true in
				heating and air conditioning systems,
The concept of Value is				transportation vehicles, industrial equipment, and
sometimes taught within the industrial engineering				other systems that use much energy.
body of knowledge as a technique in which the
value of a system’s outputs is optimized by				Some examples of value maximization and cost
crafting a mix of performance (Function) and				minimization can be as follows;
costs. In most cases this practice identifies and
removes unnecessary expenditures, thereby				- Russian liquid-fuel rocket motors are intentionally
increasing the value for the manufacturer and/or				designed to permit ugly (though leak-free) welding.
their customers.				This reduces costs by eliminating grinding and
				finishing operations that do not help the motor
During the World War II,				function better.
General Electric Co. started looking at aiming cost
minimization and value maximization because of				- Some Japanese disc brakes have parts
shortages of skilled labor, raw materials, and				toleranced to three millimeters, an easy-to-meet
components experienced in the war aftermath.				precision. When combined with crude statistical
Lawrence Miles and Harry Erlicher at General				process controls, this assures that less than one in
Electric looked for acceptable substitutes. They				a million parts will fail to fit.
noticed that these substitutions often reduced
costs, improved the product, or both. What				- Many vehicle manufacturers have active
started out as an accident of necessity was				programs to reduce the numbers and types of
turned into a systematic process. They called				fasteners in their product, to reduce inventory,
their technique “value analysis”.				tooling and assembly costs.

Value analysis reduces costs by eliminating				- Often a premium forming process (like "near net
wasteful practices. This can be done in several				shape" forming) can eliminate hundreds of
areas:				low-precision machining or drilling steps. Precision
				transfer stamping can quickly produce hundreds
- Material substitutions - Unnecessarily expensive				of high quality parts from generic rolls of steel and
inputs can sometimes be replaced by less				aluminum. Die casting is used to produce metal
expensive ones that function just as well. If a				parts from aluminum or sturdy tin alloys (they're
product has a life span of ten years, then using a				often about as strong as mild steels). Plastic
material that lasts thirty years is wasteful. In a				injection molding is a powerful technique, especially
perfectly value engineered product, every				if the part's special properties are supplemented
component of that product will function perfectly				with inserts of brass or steel.
until the product is no longer useful, at which time
all components will deteriorate.				- When a product incorporates a computer, it
				replaces many parts with software that fits into a
- Process efficiency and producibility - More				single light-weight, low-power memory part or
efficient processes can be used and the product				microcontroller. As computers grow faster, digital
can be redesigned so that it is easier to produce.				signal processing software is beginning to replace
Reducing unnecessary parts, unnecessary				many analog electronic circuits for audio and
precision, and unnecessary production operations				sometimes radio frequency processing.
can lower costs and increase manufacturability,
reliability, and profits. Process engineering can be				- On some printed circuit boards (itself a
used to increase process efficiency.				producibility technique), the conductors are
				intentionally sized to act as delay lines, resistors
- Modularity - Subassemblies that are designed				and inductors to reduce the parts count. An
and developed once and reused in many slightly				important recent innovation was to eliminate the
different products can reduce a project's				leads of "surface mounted" components. In one
engineering and design costs. For example, a				stroke, this eliminated the need to drill most holes
typical tape-player has a precision injection-molded				in a printed circuit board, as well as clip off the
tape-deck compartment. This component can be				leads after soldering.
produced, assembled and tested by an
independent manufacturer and sold to numerous				- In Japan (the land where manufacturing
companies as a subassembly. The tooling and				engineers are most valued), it is a standard
design expense for the tape deck is shared over				process to design printed circuit boards of
many products that can look quite different.				inexpensive phenolic resin and paper, and reduce
				the number of copper layers to one or two to
- Market driven product improvements - A				lower costs without harming specifications.
product with more features than customers want
is inefficient. Customers will be paying for features				- In a US environmental species restoration for
that they don’t want to pay for. Value				the Black Footed Ferret, a value study using
engineering can determine how to produce a				recent VEVA tools enable the species to be
product that exactly matches the wants of a				re-established more effectively, and with less
major segment of the market. When a customer				chance of harm to the animals.

Ldrs 23

Cost minimization and value maximization from an operations management perspective